Medical Malpractice Reform and the National Deficit

At the end of 2013, the Congressional Budget Office (CBO), an independent nonpartisan entity that performs economic and financial calculations and projections for Congress, issued a report entitled Options for Reducing the Deficit: 2014 To 2023. The CBO routinely calculates projections for how certain bills, if passed into law, would affect the government’s balance sheet. This particular report is interesting in that it makes recommendations on how to reform medical malpractice laws, which are normally the sole province of the states rather than the federal government.

Healthcare providers carry malpractice insurance to cover themselves in the event of liability on a malpractice claim. The premiums on that insurance are passed along to patience through higher medical fees and costs. The CBO Report recommends a number of reforms to medical malpractice torts around the country that could lower these costs.

CBO Recommendations
The Report suggests that states should limit noneconomic damages, which tend to also be known as damages for pain and suffering, at $250,000, and to limit punitive damages, or those assessed as punishment, at the greater of either $500,000 or twice the value of economic damages like medical costs or lost income. The Report also recommends that statutes of limitations should be one year from the date that the injury caused by the malpractice is discovered for adults, and to fix the statute of limitations for children to three years from the date the injury is discovered.

The Report furthermore advises that states should eliminate joint and several liability rules, which mandate that all defendants named in a tort suit are each individually responsible for the entire amount of a damages award. Instead, as the CBO states, each defendant in a medical malpractice lawsuit that are found liable should only be on the hook for a percentage of the damages award equal to their respective share of liability as assigned by the jury (or in bench trials, the judge). Lastly, the CBO recommends that states reform their rules to allow evidence of collateral income, from insurance policies for example, to be admissible as evidence in a medical malpractice trial. Some states do have some of these laws or similar ones, but the Report encourages all states to adopt these policies.

The Report reasons that by capping malpractice awards, medical malpractice insurance policies will be paying out less in coverage, and would then charge less in premiums to policy holders. This would reduce medical costs since the reduction in premiums would cause a reduction in what doctors and hospitals charge patients. The Report estimates that there would be a consequential decrease in mandatory spending by government programs like Medicare, Medicaid, and government subsidies to policies acquired through the new Obamacare exchanges. This reduction would amount to approximately $57 billion in savings on the national deficit over the next decade (2014-2023).

Critics point out that the CBO’s projections are incorrect, and such experiments in states like California and Texas have failed to yield lower premiums or better care. Downsides to these proposals include great difficulty for plaintiffs seeking full damages awards that they deserve, since the awards would be capped, and defendants would no longer be jointly and severally liable, meaning there could be less of a chance that they receive their full award in scenarios where there are multiple defendants that all must pay up. Additionally, with malpractice awards capped, medical providers may have less incentive to take reasonable care in practice since they would not be exposed to unlimited tort awards. The plan has little chance of becoming law, however, as some Senators have seen caps as the wrong way to implement tort reform.

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